Powell’s Rate Cut Hints and Trump Boost Drive Markets

Fed Chair Jerome Powell's dovish comments have solidified expectations for a September rate cut, leading traders to anticipate 68 basis points of easing this year. Donald Trump received a strong reception at the Republican National Convention, raising expectations of his election victory and driving surges in cryptocurrencies, gold, and bond yield curves. In Europe, Burberry's profit warning and dividend cut led to a significant drop in luxury stocks, with a gauge of the top 10 European luxury stocks falling 3%.

Equities

The FTSE 100 closed lower on Monday, pressured by weaker commodity prices and political uncertainty in the United States. The blue-chip FTSE 100 index fell 0.85%, while the mid-cap FTSE 250 dipped 0.1%, ending three sessions of gains. Burberry shares plunged 16% to a 14-year low after the company issued a profit warning and announced the appointment of former Michael Kors boss Joshua Schulman as CEO, replacing Jonathan Akeroyd. This performance weighed on the UK's personal goods sector, which tumbled about 12% to its lowest levels since June 2010. Industrial metal miners dropped 1.5% as copper prices eased due to weak demand prospects in China, which faces slow economic growth, weak lending numbers, and rising inventories.

In the US, Wall Street closed higher on Monday, building on Friday's rally. The Dow Jones Industrial Average rose 0.53% to a record closing high of 40,211.72, while the S&P 500 gained 0.28% to 5,631.22, and the Nasdaq Composite added 0.40% to 18,472.57. Goldman Sachs saw its shares advance 2.6% after the bank's second-quarter profit more than doubled, beating analyst estimates due to solid debt underwriting and fixed-income trading. Macy's Inc shares dropped 11.7% after the department store ended buyout talks with Arkhouse Management and Brigade Capital.

The prospect of a second Trump presidency boosted shares of Trump Media & Technology Group by 31.4%. Crypto stocks performed well, with Coinbase Global, Marathon Digital Holdings, and Riot Platforms up between 11.4% and 18.3%. Gunmaker Smith & Wesson and prison operator GEO Group gained 11.4% and 9.3%, respectively. Conversely, solar energy firms declined as the potential for another Trump presidency reduced expectations for renewable energy subsidies. Sunrun and SolarEdge Technologies tumbled 9.0% and 15.4%, respectively. US-listed shares of Chinese companies also declined on fears of tightened trade restrictions under another Trump administration, with the iShares China Largecap ETF falling 2.2%.

Forex & Commodities

The dollar fell slightly on Monday following comments from Federal Reserve Chair Jerome Powell, who suggested that recent inflation data supports a potential rate cut in September. The dollar index dropped 0.07% to 104.22, while the euro edged down 0.09% to $1.0897, and sterling weakened 0.22% to $1.2964. Cryptocurrencies surged, with Bitcoin rising over 6% to $63,808 and Ether climbing more than 7% to $3,417.20, driven by increased expectations of a Trump re-election following an assassination attempt.

Oil prices slipped on Tuesday due to concerns about slowing economic growth in China, which could reduce demand. Brent crude fell 57 cents to $84.28 a barrel, and West Texas Intermediate crude dropped 59 cents to $81.32. Weaker Chinese economic data, including a GDP growth rate of 4.7% for April-June, below the forecast of 5.1%, contributed to the decline. However, expectations of a Fed rate cut limited the losses.

Gold prices climbed, nearing a record high, as investors looked to hedge against potential market volatility tied to political developments and anticipated rate cuts.

In Japan, the yen remained unchanged at 157.89 against the dollar, despite a brief drop during Powell’s speech. The Bank of Japan's possible market intervention last week aimed to support the yen following a cooler-than-expected US inflation report.